Bloomberg News

German 30-Year Yield Declines to Record for Sixth Day

May 11, 2012

German bunds advanced, with 10- and 30-year yields dropping to records, as Greece remained at a political impasse following inconclusive elections, boosting demand for Europe’s safest assets.

Ten-year bunds advanced for a fourth week as the European ECommission estimated the economy of the 17-nation euro area will contract 0.3 percent this year, while Greece’s gross- domestic product will tumble 4.7 percent. Greek bonds maturing in 2023 slid for the ninth day as German Finance Minister Wolfgang Schaeuble suggested the euro area could handle the nation exiting the currency bloc.

“Nervousness about the political outlook in Greece and the rising possibility of a European monetary union exit is keeping bunds well underpinned,” said Nick Stamenkovic, a strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks. “The outlook for bunds will be dictated by the movement of risk markets, which in turn will be heavily influenced by political developments in Greece.”

The 10-year bund fell two basis points, or 0.02 percentage point, to 1.52 percent at 4:36 p.m. London time after dropping to 1.49 percent, the lowest since Bloomberg began collecting the data in 1989. The 1.75 percent bond due July 2022 rose 0.2, or 2 euros per 1,000-euro ($1,294) face amount, to 102.16. The yield fell seven basis points this week.

The 30-year yield declined four basis points to 2.2 percent after sliding to an all-time low 2.188 percent.

Deepest Contraction

Greece will have the region’s deepest economic contraction in 2012, while Spain’s GDP will shrink 1.8 percent and Italy’s will fall 1.4 percent, according to the European Commission. Portugal’s GDP will drop 3.3 percent, the commission said.

Greece’s political leaders held a fifth day of talks today as they struggled to form a new government. Evangelos Venizelos, the socialist Pasok leader, who received the mandate to form a government yesterday met first with New Democracy leader Antonis Samaras. If the parties cannot agree on a ruling coalition, new elections may need to be held.

The German 10-year bund futures contract expiring in June advanced as much as 0.3 percent to 143.07, the highest since Bloomberg began compiling data on the securities in 1990.

The yield on Greece’s bond due in 2023 jumped 65 basis points to 24.84 percent, with the price falling to 18.61 percent of face value.

Bond Losses

Credit Agricole SA (ACA) said it had 397 million euros of losses from the Greek bond-swap in the first quarter. The shortfalls include 319 million euros in debt provisions from three Greek companies as part of the country’s government-debt restructuring, it said.

“We have learned a lot in the last two years and built in protective mechanisms,” Schaeuble told the Rheinische Post newspaper in an interview published today, when asked whether the euro area is prepared for a Greek exit. His comments were confirmed by the Finance Ministry in Berlin.

Italian two-year notes fell after the nation sold 10 billion euros of 92- and 364-day bills, matching its maximum target. The average yield on the 364-day securities was 2.34 percent, down from 2.84 percent at a sale on April 11.

The yield on the two-year securities climbed two basis points to 2.99 percent.

Volatility on Dutch bonds was the highest in euro-area markets, according to measures of 10-year debt, the spread between two- and 10-year securities and credit-default swaps. The change was 3.1 times the 90-day average.

The Dutch 10-year yield dropped as much as seven basis points to 2.019 percent, matching their all-time low.

German debt has returned 2.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds lost 1.9 percent, while Italian securities gained 10 percent.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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